Expiring employment contracts still a ‘dismissal’ by an employer

WHO SHOULD READ THIS

Employer’s who employ staff on outer-limit contracts as part of their employment arrangements

THINGS YOU NEED TO KNOW

Employer’s who offer employees successive outer-limit contracts may be exposed to dismissal-based claims if these contracts are not renewed.

WHAT YOU NEED TO DO

Review the circumstances behind any employee who has been on a continuous series of outer limit contracts. If the circumstances behind renewing their contracts are not external to your organisiation understand that defending an unfair dismissal claim may be challenging.

Employees on outer limit or ‘maximum term’ contracts may now be able to access the unfair dismissal jurisdiction following a significant full bench decision.

Background
A full bench of the Fair Work Commission (FWC) has found that an employer’s decision not to offer an employee a further contract may constitute a ‘dismissal’ under the Fair Work Act 2009 (Cth)(the FW Act).

The case arose after an employer (Navitas) decided not to renew the outer-limit contract of one its employees, Mr Khayam. The FWC heard that Navitas had offered Mr Khayam a number of successive outer-limit contracts over a four year period. Upon expiry of his last contract, Navitas informed Mr Khayam that he would not be offered a further contract due to concerns regarding his performance. Mr Khayam filed an unfair dismissal application.

First Instance Decision
The issue before the FWC was whether termination had occurred by effluxion of time or at the initiative of Navitas. This issue is critical as only a termnination at the initiative of the Employer will trigger the unfair dismissal jurisdiction under the Fair Work Act. Mr Khayam relied upon subsection 386(1)(a) of the FW Act and submitted that his ongoing employment was terminated at the initiative of Navitas, as it came to an end by way of a deliberate decision by Navitas not to offer him a further contract.

At first instance, Commissioner Hunt dismissed Mr Khayan’s application on the basis that his employment had terminated due to the expiry of the last contract and not therefore at the initiative of the employer. In reaching his decision, the Commissioner relied upon the reasoning of the Industrial Relations Commission in Department of Justice v Lunn. In that case the Full Bench held that, provided sham arrangements are not involved, outer limit contracts will terminate through the effluxion of time so that there is no termination of employment at the initiative of the employer.

Mr Khayam filed an application to appeal the decision.

Full Bench Decision
Despite being regarded as settled authority, a full bench of the FWC rejected the approach adopted by the Industrial Relations Commission in Lunn. Instead, the FWC endorsed the proposition that an employer’s decision not to renew an outer limit contract in circumstances where there have been successsive contracts may constitute a dismissal. The FWC held that any determination as to whether termination has occurred at the inititative of the employer requires consideration of the entire employment relationship, not just the contract.

Key take aways
While employers who engage employees on outer limit contracts, have previously enjoyed a reasonable degree of certainty surrounding the abililty of these employees to access unfair dismissal laws, this is no longer the case.

Employers are now exposed to the risk that employees on term contracts may be eligible to bring unfair dismissal claims, particularly in circumstances where they have been offered a series of successive term contracts. In these instances, an employer’s unilateral decision not to continue the employment relationship creates risk when it comes to defend an unfair dismissal claim.

If you would like further information on this matter please contact a member of the Employment Relations and Safety team. With the expansion of our Employment Relations and Safety practice into Sydney, we would like to introduce you to Partner Scarlet Reid and her specialist team, including Senior Associates Tom Reaburn and Nathan Roberts. Find out more about the Employment Relations and Safety team here.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.